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Finally a Chance to Stop Tax Breaks for Private Equity

New OrleansThis is not a report for everyone, and talking about closing tax loopholes is almost guaranteed to make virtually anyone’s eyes glaze over, but when it involves billions of dollars worth of goodies for private equity vultures, greased by hundreds of lobbyists’ contributions that have gilded this giveaway in Congress, it’s worth rallying behind anything that gives us hope for greater equity.Thanks to a piece in the Times by Ohio State professor Steven Davidoff we have some light shining on the issue of “carried interest.”

Did I just lose you?I hope not.Carried interest is “a term of art that refers to profits that a private equity advisor makes from investment in companies” allowing them to pay taxes on profits as capital gains at 20% instead of treating the money they are making as income and paying a maximum of 39.6%.If you’ve ever wondered why these private equity guys make gazillions, that’s it in a nutshell.

A case brought by one of these bums against the Teamsters Pension Fund to try to beat them out of a couple of million in contributions in the bankruptcy of a brass company may bring the whole sordid scam down.A United States Court of Appeals sided with the Teamsters that the equity fund was involved in “trade and business” because through their investment they were “actively involved in management and operation of the companies in which they invest.”All of which is obvious everywhere, but here’s the killer, by pretending they were making passive investments, equity funds have been driving Mack trucks through the carried interest loophole.By ruling on the obvious the Court seems to have finally shown the way to stop the gravy train that Congress has been allowing for years, even as many in the equity business admitted there was no justification for the loophole they enjoyed.

Unfortunately there’s still a problem.The IRS has to now act and modify the rule, so in effect the fight has moved from Congress to the bureaucracy, and god knows it’s hard to pressure the IRS, but that’s exactly what we need to do to finally stop this multi-billion dollar giveaway that has done so much to create inequity in America and havoc in our economy.